A EURCAD Range Doesn’t Have to be Perfect to Trade

How stable is the EURCAD Range? •    Levels to Watch: -Range Top:       1.6000 (Trend, Fib, Pivot) -Range Bottom: 1.5600 (Fibs, Pivot) •    Whether it is a deserved dynamic or not, EURCAD’s primary fundamental influence rests with risk appetite. The Canadian dollar maintains a record low benchmark lending rate and has little prospect for increasing that yield in the near future; but its commodity link more than fills in for speculators. Over the coming week, however, we could perhaps see standard event risk come back into play. Jobs data and a BoC rate decision can threat volatility.  •    Congestion for EURCAD is sloppy but consistent. Stepping back for a larger perspective on price action, there is a considerable wedge formation with roots that go back to the beginning of the year (if not further). Short-term, congestion has developed between notable fib and pivot levels set at 1.60 and 1.56.  Suggested Strategy •    Short: A reduced entry order at 1.5975 works to control risk. •    Stop: Though it does not cover the Sept swing high, a stop of 1.6075 covers primary resistance. To secure profit, move the stop on the second lot to breakeven when the first target hits. •    Target: The first target is one and a half times risk at 1.5825 (150). The second is 1.5750.

Trading Tip – While a trader may prefer a clean and consistent range to trade; perfect technical levels and fundamental backing are a rare combination. Our EURCAD setup for today is certainly mature and has drawn numerous confirmations of both resistance and support; but its boundaries have not held fast to the frequent volatile swings the pair has established. These conditions do not render a pair untradeable. In fact, it is arguable that such a setup is ideal because it doesn’t draw undue attention to itself. In order to trade such a scenario, though, a sound strategy is essential. The first step we need to take is to ensure the loosely defined technical levels don’t encourage stops being placed too tight or risk being leveraged by placing them wide. Our setup does use a wide stop to allow for some volatility in a reversal; but also looks to control risk by using an aggressive entry and reducing position size. Furthermore, the first target is set wide to compensate for the risk taken; but it is still well within reason considering the pace of reversals in this area. The second objective is set relatively tight as there is another frequented pivot level (with less consistency) around 1.5750. We will cancel all open orders by Monday as reversals usually play out quickly. If it doesn’t, it is a sign that pressure is building into a potential breakout.

Event Risk for the Euro Zone and Canada

Euro Zone – The European Central Bank (ECB) is taking measured but sure steps towards reining in its emergency stimulus. After its announcement that the benchmark lending rate would be held at 1.00 percent for another month, President Jean Claude Trichet told revealed the group’s decision to let the unlimited, fixed rate 12-month loans to expire after December and further let the six-month loans end in the first quarter. Officials may be adamant in their dismissal that this is a step towards a rate hike; but regardless of timing, it is. As for event risk going forward, there are few notable economic releases on the euro’s economic docket. German factory activity and trade are among the few second tier indicators on deck. The ECB monthly report however could alter speculation modestly.

Canada – Canadian event risk is looking to heat up significantly over the coming week. Friday’s offers are perhaps the most market moving offers of the period. While the country’s monthly jobs report may receive less publicity than its US counterpart, the net change figure is nonetheless a valid source of volatility. A significant surprise in the change or rate figures can easily run short-term technical levels. Also due Friday is the Ivey PMI figure for November. One of the most commonly cited indicators for business activity, this is a gauge that indirectly measures future growth, trade and a myriad of other conditions. After the weekend, the BoC rate decision will mostly likely not bring a remarkable change in policy; but it can be used to time an eventual change.